Taking the wheel at Toyota

Early forecourt forecasts suggest 2015 will see the motor trade exceed 100,000 new car sales, a psychological benchmark for a business sector battered by the recessionary storms.

It coincides with a changing of the guard at the three biggest car brands. At Volkswagen, Lars Himmer took over from Simon Elliott as managing director in December. Ford Ireland president and chairman Eddie Murphy ended his 14-year tenure at the top on January 1st, with current sales director Ciarán McMahon taking over. On the same day David Shannon handed over the keys to Toyota Ireland to his deputy Steve Tormey.

All three new bosses face a very changed landscape, one where growth rather than survival will define their tenures. "Before the world collapsed in 2008, Toyota was up to a 15 per cent market share," says Tormey. "We were all guns blazing at that stage with over 30,000 Toyota cars sold in that year alone. Two years later, we were down to 8,000 cars annually." For its sibling premium marque Lexus, the drop was even more severe – falling from over 1,000 to just 221.

In the motor trade, the recession was part of a perfect financial storm. Its onset coincided with major changes to the motor tax regime, which moved from a system based on engine size to one based on emissions.

“In 2008, at the flick of a pen, the Irish market did a flip from petrol to diesel and most of that was down to road tax changes,” Tormey recalls.

“When we came into 2009, I know for a fact the government were predicting a market of 130,000 cars. That turned out to be 58,000. So we had planned for probably 110,000 or so and we were left with thousands of unsaleable cars.

"I remember it was a very stressful time. You are sitting on thousands of unsold cars and no price for them in Ireland. Nobody wants them and there is tens of millions of euros worth of product sitting out there. I remember going over to Toyota's European headquarters in Brussels and eventually doing a deal. They agreed to take some of them in the UK and we were given a 72-hour window to get 1,500 cars cleaned, prepped and delivered across the Irish Sea. What that required was every manager, director and staff member down in our Kylemore Road facility cleaning these cars over the entire weekend, long into the night. It was a hairy moment. We took a hit but not as bad as we would have had to take sending them into the market here. There were all sorts of models, from high ticket petrol Lexus cars through to big volume Toyota models."

Another blow was the timing of investments that dealers were making in premises at the time. These were largely driven by a need to meet new standards introduced as part of EU trading legislation for the motor industry, known as Block Exemption rules. However, Tormey says the standards required of Toyota’s Irish dealers were not onerous. “We never asked dealers to go above and beyond what was laid out at European level,” he says.

“Certainly some dealers saw it as a legacy issue that they wanted to leave behind a fantastic building. The building programmes really kicked off around 2007. No one could have predicted the level of the downturn or the way that it happened.”

Closures

Toyota's dealer network wasn't immune to closures with the loss of the Hogan Motor Group in the west of Ireland and McCabes Garages in Co Louth.

“The dealers that were lost weren’t dealers solely in the car business,” he says.

Tormey says Toyota also supported dealers in trouble at the time. “We did help out where we could. What you try to do is keep your dealer in business and whether that means helping in bank situations or cashflow issues, temporary credit situations, we looked at all of the above and helped out where necessary.”

Closures were not the only changes to Toyota’s dealer network. There was a parting of the ways between the firm and some other dealers. “We made some decisions and we’ve right-sized for the market with 46 dealerships now.”

Tormey refuses to comment on upcoming court action where a number of car dealers claim they are being discriminated against in relation to the criteria for appointment as authorised repairers. Fifteen outlets around the State, including Cranley Cars, Linders, Murphy & Gunn, Fitzpatrick’s and Kearys, are claiming Toyota Ireland is acting in breach of competition legislation in stipulating certain requirements. Toyota disputes the claims.

As for the lessons from the recession, Tormey says firms learned you have to future-proof yourself for a downturn. “You have to get your cost base right and you have to be able to know that you can take a certain amount of pain. And what is your crisis plan if such a thing happens,” he says.

The motor trade also learned it had to focus more on looking after current customers and not just taking orders for new car sales. “We have 390,000 cars on the road that we have to service and we need to know how to get them back into the network. That area of the business we probably didn’t know as well as we should. So one lesson from the downturn is to know your business better.”

In 2010, Toyota was also caught up in a highly publicised global recall involving millions of its cars. Suddenly its well-known slogan, "the best built cars in the world", seemed to be self-mocking amid the high-profile recalls and US Senate hearings.

"I think the failing in the recall initially was a PR failing. In Japan, they weren't ready for the western media questions and that you need to answer these queries promptly. The layers of management they had meant the decision-making came too slowly."

Positive signs

But he sees positive signs of the strength of the brand on the back of the recall. “There was so much media coverage that it would have been natural to see customers decide to try some other brand. But what we’re finding now is that those people who did try something else are coming back to the brand because they are saying that the lived-in quality of the other car they bought was not the same as Toyota.

“People in the three- or four-year change cycle are coming back and that’s very reassuring for us.”

As with all those hoping to win the hearts and minds of Irish car buyers, the weapons at hand to Tormey will be largely in the marketing realm. As a family-owned national distributor, Toyota Ireland may have a powerful voice at the head table given its strong national market share – one of the largest for Toyota in any of its European markets – and the close ties established with senior Toyota family members and Dr Tim Mahony over the years, but it is still not directly involved in either production or product planning.

And unlike wholly-owned subsidiaries such as the Volkswagen brands – which include the eponymous German marquee along with Skoda, Seat and Audi – it doesn't have access to an in-house banking arm to finance car deals.

Its job, therefore, is to opt for a portfolio of products suited to the Irish market from the vast array of models built by the car giant, and manage the brand’s image and distribution operation to make the most of marketing their strengths.

Tormey's marketing ability was honed at Guinness, where he looked after the marketing of its licensed lager brands, such as Carlsberg, Budweiser, and smaller brands like Satzenbrau.

“The marketing in Guinness was second to none, there was a real science there and they really thought deeply about how consumers think and about the brand’s image,” he says.

He speaks highly of the Carlsberg approach to its brand and the way the Danes let Guinness hone the message specifically for the national market. He says there are strong similarities between it and Toyota, with both firms proud of their reputation for quality and for the strong family heritage that underpin the brands.

Family ties don't just occur at the Japanese end. The current Toyota chief executive and president, Akia Toyoda, is a scion of Toyota's founder. In Ireland, the Toyota franchise was operated by Mahony since the 1970s up until his death in 2010. Tormey is his son-in-law.

His introduction to the Toyota and Lexus business was, aptly, through these family ties. O'Mahony organised a summer job for Tormey selling cars at a Carroll and Kinsella dealership in Dublin while he was studying for a management degree.

Despite his future father-in-law’s business interests, when Tormey completed his studies in 1990, he opted to take up an offer of a graduate position at Guinness rather than enter the motor trade. “I was a guy in my 20s trying to find my own way and I was eager to do my own thing.”

In his first job as the Guinness sales rep for one of the firm's western regions – including Galway city – he managed the accounts for over 150 pubs and saw first-hand the trials and tribulations of frontline business in Ireland. "I've found that managing and supporting the dealer network is similar in many ways to working with the publicans," he says.

After several years rising up the ranks at Guinness, Tormey was persuaded by Mahony to make the move to Toyota in 1998. “I suppose when it was sold to me, I saw the real opportunity and why this was an industry with great potential at the time.”

Sport played a major part in the life of Mahony, a GAA dual star for Cork and Dublin, who also built the golf course at Mount Juliet. It's fitting then that Tormey boasts an impressive sporting career. He started playing rugby during his school days at Belvedere College and, when he moved to Galway with Guinness, he played for both Galwegians and Connacht, the latter managed by Warren Gatland at the time and boasting several internationals. He has also been both captain and president of Old Belvedere rugby club in Dublin.

And it was rugby that came to define one of Tormey's most high-profile marketing achievements at Toyota: the Munster sponsorship. It wasn't an obvious connection at the start, particularly for a brand more closely linked to GAA. "We heard through a dealer that the sponsorship deal might be up for grabs. The money involved then was relatively low, probably €300,000 to €400,000.

"At that stage Munster had reached a couple of finals and lost and there were several retirements in the squad, so some people had questioned if our sponsorship was a good spend of money. I had to convince some folks in here that it was worth the investment. The team went on to win two Heineken cups. From the outset, I had no doubt they were going to win at least one. The deal meant that, when they did succeed, the Toyota logo would be forever emblazoned on the team's success."

The parting of the ways between the two was down to the recession, says Tormey, as it was not possible to sign off on a seven-figure sponsorship deal at a time when jobs were being shed in the business.

Irish angle

Toyota, he says, has always taken a definitively Irish angle to its image, from its early Irish language adverts to a series of ads in the 1990s with the endearing Celtic sage of the time, Brendan Kennelly, who didn't actually drive . The current campaign taps into the firm's links to Irish sports stars such as Katie Taylor and Paul O'Connell, continuing the strong Irish sense to its marketing. Tormey is eager to contrast this with rivals who run generic international ads with voiceovers.

As to the upcoming battle for market share, Tormey is reluctant to say whether Toyota will finish 2015 as the best-selling brand. Certainly they will compete for top spot, he says, but the actual size of the new car market these days isn’t clear. He reckons at least 20 per cent of the new cars registered aren’t sold to customers but rather are what’s referred to in the industry as pre-registrations. These are cars registered by the distributor or dealer in order to meet sales targets. These cars are then sold on to the market at a slight discount as low-mileage – or even no-mileage – used cars.

“Ultimately if you are forcing supply greater than demand onto the market, you are affecting residual [resale] values. And if you are forcing too many cars onto the market through the dealer network, you are not going to have profit there and you are creating problems for the future.

“We speak to competitor dealers and, while they were happy with the pre-reg [business] model a few years ago because it worked at the time, I don’t think they are so happy with it now.

“We have to think of the long-term because we are a private importer and we’re here for the long-term. Typically the heads of these manufacturer-owned rivals change every three years or so and maybe a new guy comes in with a different view of things but I have to say I don’t think pre-reg has been a good development in the Irish market. It will affect residual values in the market beyond its natural demand.” So what is the natural demand of the Irish new car market? “For 2015, most people are talking about a figure around 110,000. I’d say it will hit that alright, but what level of it is pre-registration I’m not sure.”

Competition

As to his competition Tormey says: “I don’t know what their task is. I know that VW wants to be number one in the world by 2018 or so and maybe it’s critical that they have to be number one here as part of that plan. I don’t know.”

He predicts the Irish operation will have sold about 14,000 Toyotas and 500 Lexus by the end of this year. That’s up from 10,275 Toyotas and 353 Lexus models registered last year. “We believe, particularly as people come out of the recession, that branding will again become a more important desirable thing to have than maybe it was over the last five years where price was the deciding factor.”

But is Toyota not regarded as a sensible rather than exciting brand? “We have a brand that’s very big in the middle and most people want our type of car. I think if you go around the globe, the top three brands mostly are Toyota, Ford and Volkswagen in some sort of order. Those are the types of cars most people want. We have other strings to our bow, with hybrid powertrains and we offer different points of interest.”

On the new tech and powertrains, Tormey says: “It’s not even discernible from where I sit in Toyota which technology they are backing. They have a range of options they are pursuing. There is no silver bullet. I’m sure my competitors are the same. Toyota has so many patents out, far and away in excess of most rivals. In R&D, Toyota spends about €10 billion a year.”

However, given the political interest in the environmental debate, Tormey says it is clear there needs to be greater consultation with the motor industry over future infrastructure and transport plans.

“Certainly in my new role I’ll be pushing for more engagement with government in the future and for the motor industry to become more involved in the debate over urban planning and highlighting the types of technologies coming into the market over the next 10 years. So, electric vehicles, plug-in hybrids, fuel cell vehicles – 10 years ago nobody discussed these formats seriously at government level. That’s where we can offer advice.”

Facing off against arch-rivals like VW and Ford, along with newcomers such as Hyundai and Kia, Toyota Ireland will need to call upon all its marketing prowess and heritage in the battle ahead. Two themes resonate at Toyota: a family approach and marketing prowess. It's fitting that its new chief executive in Ireland ticks both boxes.

CV

Name: Steve Tormey.

Position: Chief executive of Toyota Ireland.

Age: 46.

Family: Married to Sarah with four children - Hannah (20); Molly (16); Robin (15) and Jed (11). Hobbies: A keen sports fan – particularly of rugby – he is also a regular concert goer, attending the Electric Picnic with his wife every year.

Something you might expect: Tormey completed Harvard's advanced management programme in 2010, a two-month residential course. His class included CEOs and managing directors of blue-chip companies, while his working group featured a former Dutch government minister, a doctor from Australia, a CFO from a US bank, a Thai former fighter pilot who ran the Singapore airport. "It gave you an insight into how and what corporations think. I have a better understanding of the decision-making process at the top level of Toyota and other corporations."

Something you might not expect: His links to Japan go back to his childhood. When Tormey was an infant his family spent a year in Japan while his father was based there as a pilot.